Upcoming changes in employment law: fixed-term contracts

On 10 April 2015 the Council of Ministers presented the Polish Parliament with draft amendments to the Labour Code aimed at limiting unjustified use of fixed-term employment contracts.

Changes in the Polish law on fixed-term employment contracts have been contemplated for some time already, in particular in the context of the judgement of the Court of Justice of the European Union of 13 March 14 (file No. C-38/13). In one of our tax alerts What is the future of the employment contract for fixed term? we have commended on the judgment.

Currently, a fixed-term contract is a popular form of employment due to its high flexibility, in particular the possibility to terminate the contract at a short notice (two weeks) with no reasons provided by the employer. Such contracts are often concluded for a few years and they are in fact treated as a substitute of open-ended employment contracts, because they enable immediate and informal termination of employment relationship.

The proposed amendment to the Labour Code is aimed at disallowing such practices.

The key changes proposed in the government draft:

1. Reducing the number of employment contract types

The draft reduces the number of possible employment contracts to three types:
• trial period employment contract;
• fixed-term employment contract; and
• open-ended employment contract.

Therefore, contracts for the period of performing a given job and replacement employment contracts will be replaced with fixed-term employment contracts.

2.Limiting duration and the number of fixed-term employment contracts

The labour law does not impose a time limit for fixed-term employment contracts, therefore in practice contracts are concluded for long periods (e.g. 5,7 or 10 years) and can be terminated earlier. The Supreme Court objects such practices having issued individual judgements disallowing excessively long employment periods not resulting from any extraordinary circumstances. Still, employers tend to conclude such fixed-term contracts with employees, whose employment is not of a temporary nature so that they could terminate the relationship easily.

To prevent such situations and perhaps also learning from the effects of the so-called “Anti-crisis Act", a maximum 33-month limit has been introduced for fixed-term employment contracts. Moreover, a total employment period under fixed-term employment contracts concluded by the same parties to the employment relationship cannot exceed 33 months.

If such time limit is exceeded, an employee shall be deemed employed under an open-ended employment contract as of the first day following the deadline in question. In practice, the fixed term of employment shall not exceed 3 years (3 months of trial period employment and 33 months of open-ended employment contract).

Another important change is that a given employer can enter into up to three fixed-term employment contracts with one employee. If thefourth contract is concluded, an employee shall be deemed employed under anopen-ended employment contract irrespective of the time elapsed between concluding individual fixed-term contracts.

For comparison, in accordance with the applicable law the third fixed-term employment contract becomes an open-ended contract by virtue of the law if the time gaps between consecutive contracts do not exceed one month. Employers have sometimes extended the gap between the contracts to exceed one month to evade the law.

In the light of new regulations such steps would be ineffective, as time gaps between contracts will bear no importance.

In accordance with the draft certain exceptions to the time and quantity limits for fixed-term employment regulations have been allowed. They concern contracts concluded to replace employees or seasonal and temporary work.

3. Changing notice periods in fixed-term employment contracts

In compliance with the regulations in force, fixed-term employment contract may be terminated only if the contract period exceeds 6 months and if appropriate provision in this respect has been included in the contract. At the same time, the notice period is always two weeks, irrespective of the employment period. In line with the bill, a fixed-term employment contract may be terminated upon a notice of termination, irrespective of the contract period. Moreover, the notice period shall the same as for open-ended employment contracts (i.e. from two weeks to three months, depending on the employee’s length of service).

4. Transitional provisions

The bill details transitional provisions regulating employment relationships under fixed-term employment contracts which will apply when the act enters into force. The new regulations and in particular the new notice period will apply to most such contracts. Moreover, as a rule, the employment period determining the notice period and the maximum period of employment under a fixed-term contract will be calculated as of the date when the amended act comes into effect. Similarly, a contract effective in time when the amendments come into force will be deemed the first (or, in certain cases, the second) fixed-term employment contract under new regulations.

The changes discussed may considerably limit the possibility to use fixed-term contracts in future, in particular those entered into for a period exceeding three years. Additionally, the obligation to adjust notice periods to the length of service will extend the contract termination procedure.

At the same time, in line with the transitional provisions, employers will have to consider how the amended law will affect employment relationships determined in fixed-term contracts effective on the date when the law enters into force.

Significantly, despite far-reaching amendments concerning the rules of concluding fixed-term employment contracts and notice periods thereof, the obligation to justify the termination, as suggested by a large group of lawyers, has not been implemented.

Please note that the discussed bill may evolve in the course of legislative works in the Polish Parliament.

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